Jack Bogle’s elevated volatility

Jack Bogle, American investor business magnet with a net worth of $80 million USD has recently taken to the stage to express his elevated volatility view about the current state of the market.

‘I have never seen a market this volatile to this extent in my career,” said Jack Bogle April 5 in a CNBC interview.

If a good investor is like a fine bottle of wine which matures well with age then Jack Bogle’s elevated volatility is worth noting bearing in mind that the veteran investor’s career spans over 66 years of investing.

So Jack Bogle’s elevated volatility view has been extrapolated over a longer time frame than most investors. The veteran investor has lived through past volatility.

“I’ve seen two 50-percent declines, I’ve seen a 25-percent decline in one day and I’ve never seen anything like this before.”

The Cboe volatility index (VIX) which is widely considered the market’s best fear gauge – is just above 20 (as I write this piece), higher than any point in the unusually calm 2017.

That is still below a VIX reading of more than 30, which implies a high level of investor fear and that is bullish from a contrarian point of view. A VIX level below 20 is generally considered to be bearish because it indicates that investors have become overly complacent about risks in the market.

So perhaps Jack Bogle’s elevated volatility view is just the beginning of a longer period of choppy markets. VIX levels have been rising since the ultra calm low volatility period of 2017 as investors factor in current risks lurking in the market.

The Cboe volatility index (VIX) which is widely considered the market’s best fear gauge – is just above 20, higher than any point in the unusually calm 2017.

A potential tit-for-tat trade war between the US and China, monetary tightening, rising inflation fears and a deterioration in the geopolitical landscape have all recently weighed on investor sentiment and pushed the VIX higher.

“This volatility is of interest to speculators, not long-term investors,” said Jack Bogle.

Speculators/traders need volatility to make profits. The job of a speculator is to gauge the market’s trajectory and position their trades in that direction with the aim of making short-term gains. In short, a trader profits from the market’s overreaction to an event which can either trigger excessive fear or exuberant greed.

So Jack Bogle’s elevated volatility view provides plentiful trading opportunities for traders. Put another way we currently have trader’s market. Take, for example, the S&P 500 which has posted 26 moves of at least 1 percent since the year began with often wild swings from one trading day to the next. For schooled traders, this kind of volatility creates short-term trading opportunities.

Forget about what has worked the past few years and think about what might work the next few years – Andrew Left, Citron Research

What could be causing Jack Bogle’s elevated volatility?
We are at a pivotal moment. This aging bull market is causing investors to reassess their portfolios. In other words, investors pile their chips into stocks where they can still find value in an aging bull market.

“There is a decent chance that, due to inflationary pressures and higher interest rates, the market will be up somewhat less than earnings” Strategas chairman Jason DeSena Trennert says.

“Forget about what has worked the past few years and think about what might work the next few years” Citron Research’s Andrew Left says.

“It’s time to be defensive” says Fred Hickey.

Whatsmore the big banks are managing investor expectations by downgrading their S&P target. For example, RBC’s head of US equity has cut its year-end target for the S&P 500 to 2,890 from 3,000.

I have never seen a market this volatile to this extent in my career – Jack Bogle

That is a bullish take on Jack Bogle’s elevated volatility view.

Another camp of investors reckon that the Bull market in stocks is over, that the correction experienced in early February was a sign that the stock market top has been reached and in the next weeks and months ahead the remaining bulls are going to head for the exit, albeit it slowly at first and then a greater number of bulls are expected to capitulate at a faster pace.

So perhaps we ought to keep the VIX on our radar.

But what could really be supporting Jack Bogle’s elevated volatility view is that the big players are not sure how to play it in one of the greatest geopolitical event of the century unfolding in front of us.
Is this the twilight period of USD hegemony and should they pivot to the East?

Morgan Stanley is hedging its bet and opening a major project with the Silk Road and the AIIB and as I write this piece it is Xi’s pledge to open China’s market that is energizing the world stock markets.

Jack Bogle’s elevated volatility view holds water. The gravitational pull to the East away from the West is increasing and as the two pivotal forces battle with each other, that creates erratic moves like two magnets on either side of a metal-eventually the metal will be pulled to one magnet.

The coming century will either be a dollar-centric world or a Yuan centric world. The multicentric world is a myth- a kingdom has one king, a ship has one captain and the world has also one reserve currency.

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